Precise cell fate decisions during differentiation of uterine tissues from the embryonic Müllerian duct are critical for normal fertility. Wnt-7a, a member of the Wnt family of secreted signaling molecules that can signal through a canonical beta-catenin pathway, is necessary for the correct differentiation of both anterior/posterior and radial axes of the uterus. In order to investigate the role of beta-catenin directly in mouse uterine development, we have generated mice that are deficient in beta-catenin expression in the embryonic Müllerian duct. We have found that conditional deletion of beta-catenin in the Müllerian duct mesenchyme before postnatal differentiation of the uterine layers results in a phenotype that is distinct from the phenotype observed by deletion of Wnt-7a. Shortly after birth, the uteri of the conditional mutants appear smaller and less organized. The uteri of adult conditional beta-catenin mutants are grossly deficient in smooth muscle of the myometrium, which has been replaced by adipose, a phenotype resembling human lipoleiomyoma. We also show that the adipocytes in the uteri of mice conditionally deleted for beta-catenin are derived from Müllerian inhibiting substance type II receptor-expressing cells suggesting that they share a common origin with the uterine smooth muscle cells. These results describe the first molecular evidence linking disruption of beta-catenin expression in mesenchymal cells with a switch from myogenesis to adipogenesis in vivo.